Confused about TDS on Purchase of Property? Our blog breaks down Section 194IA, the process, and penalties, helping you navigate property transactions with ease and avoid costly mistakes.
When purchasing property, whether it be a building, a part of a building, or land, the concept of Tax Deducted at Source (TDS) plays a crucial role. This guide delves into the essentials of TDS on purchase of property transactions, providing clarity on its implications, requirements, and addressing a real-life scenario for better understanding.
What is TDS on Purchase of Property?
TDS on purchase of property refers to the tax deducted at the source on the transaction value of immovable property. This system aims to ensure that the transactions involving real estate are conducted transparently, reducing the scope for black money transactions. Under Section 194IA of the Income Tax Act, 1961, buyers of immovable property are required to deduct TDS at a rate of 1% if the purchase value exceeds Rs.50 lakhs.
Key Aspects of Section 194IA
Applicability:
- TDS is applicable when the value of the property exceeds Rs.50 lakhs.
- The deduction must be made at the time of payment or crediting the amount to the seller’s account, whichever occurs earlier.
- The TDS rate is set at 1% of the total sale consideration.
- Agricultural land transactions are not covered under this provision.
Requirements:
- TDS should be deducted by the buyer, not the seller.
- If the seller’s PAN is not available, TDS is deducted at a higher rate of 20%.
- PAN cards of both parties are mandatory.
- TDS should be paid using Form 26QB within 30 days from the end of the month in which the TDS is deducted.
- Form 16B must be issued to the seller.
Penalties for Non-Compliance:
- Non-payment or late payment of TDS can attract penalties, including a fine up to Rs.1 lakh.
- Interest on late payments can be 1% per month if tax is not deducted, and 1.5% if deducted but not deposited.
Real-Life Scenario: A Case Study
Let’s explore a real-life scenario to illustrate the practical implications of TDS on purchase of Property:
Background: A person purchased a property in India from the seller, who was a senior citizen.
Transaction Details:
- Transaction Amount: INR 85 lakhs
- TDS Amount Paid: INR 85,000 (1% of the transaction value)
Issue: A demand notice was issued to propery buyer indicating a shortfall in TDS, with a claim for 20% TDS due to the seller’s PAN being inoperative and not linked with Aadhaar at the time of the transaction.
Despite the seller having resolved the issue by linking their PAN with Aadhaar, the problem remains unresolved. A new demand notice was issued to buyer, indicating an outstanding amount of 20%.
Issue:
- The discrepancy originated from the seller’s PAN status, not buyers.
Challange:
- Despite submitting a correction request, the issue remains unresolved.
Guidance for Resolution:
Documentation:
- Ensure you have all relevant documents, including proof of payment of TDS, PAN and Aadhaar linkage details of the seller, and correspondence with the tax authorities.
- Obtain a confirmation from the seller that their PAN is now linked with Aadhaar.
- Keep a record of all communications and ensure that any discrepancies are addressed promptly.
Engage with Tax Authorities:
- Contact the Income Tax Department to explain the situation, emphasizing that the TDS issue originated due to the seller’s PAN status and was beyond buyer control.
- Provide a copy of the demand notice, proof of TDS payment, and any communication related to the PAN-Aadhaar linkage.
Seek Professional Help:
- Consult a lawyer who can prepare and file the submission with the Tax Department to get the issue resolved. A lawyer will regularly monitor your case with the tax authorities and promptly respond to any further notices received from the tax department.
Conclusion:
Understanding TDS on purchase on property transactions is crucial for both buyers and sellers to ensure compliance and avoid penalties. By adhering to the guidelines of Section 194IA and addressing issues promptly, you can manage property transactions effectively and avoid unnecessary complications. For issues like the one described, maintaining clear documentation and engaging with tax authorities will help resolve discrepancies and ensure smooth processing of TDS-related matters.
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